1. “Exploring insurable political risk. Its effect on the economy and the insurance industry” By Maxwell Chiyangwa

2. MARSH 1 July 10, 2016 Agenda Introduction Political Risk Defined Terrorism/Political Violence Coverage Comparison Effects of Terrorism on the Economy - 9/11 Retrospective Assessment Terrorism vs Political Risk Insurance Political Risk Insurance Claims data and scenarios Summary

3. MARSH 2 July 10, 2016 Introduction - Political Risk Africa Overview Promising Demographics Growing Middle Class Booming Economy Potential Job Growth Infrastructure Development Threats Terrorism Political Risk

4. MARSH 3 July 10, 2016 What is Political Risk? Political risk is the probability of disruption to a companies operations by political forces or events, whether they occur in host countries or result from changes in the international environment. Insurable Political Risk Events are those which Insurers have felt able and comfortable to identify, quantify and price Political Risk Insurance overs more broad cover than cover provided by Terrorism insurance

5. MARSH 4 July 10, 2016 Terrorism/Political Violence Coverage Comparison Terrorism InsurancePolitical Risk Insurance More standardized terms; wording similar to propertyTailored, more negotiation Frequently purchased to meet Lender’s requirements to fill gap in property cover after 9/11 Often bundled w/ other political perils like Expropriation but also available on a stand-alone basis. Pricing driven more off of TIV of portfolioPricing based more on limit and country group More portfolios of exposure insuredMore single placements insured but growing demand for and placement of portfolio cover Typically, annually renewed terms, although sometimes 3 and max 5 year policies are possible. Up to 20 years Best for: Developed CountriesBest for: Emerging Markets Both types of coverage may be endorsed to include loss from Business Interruption (loss of business income), Increased Expense, and Debris Removal (in addition to physical damage loss valued at replacement cost). List of perils is restrictedList of perils is broad

6. MARSH Effects of Terrorism on the Economy - 9/11 Retrospective Assessment 5 July 10, 2016

7. MARSH Effects of Terrorism on the Economy - 9/11 Retrospective Assessment 0.5% decrease in GDP growth, ($60b) Tourism in New York City fell Job losses Toll and physical damage $55b Economic impact $123b Homeland Security and other costs $589b War funding and related costs 2 $1,649b Future war and Veterans' care costs $867b Largest property/casualty claims in history, at $40b Led to insurers offering limited, restricted, and expensive coverage for terrorism Led to the signing of TRIA in 2002 (TRIPRA in 2015) 6 July 10, 2016

8. MARSH Effects of Terrorism on the Economy - 9/11 Retrospective Assessment Impact on Insurance - Distribution of Claims by Class 7 July 10, 2016

9. Terrorism vs Political Risk Insurance

10. MARSH 9 July 10, 2016 Terrorism/Political Violence Coverage Comparison TRIGGERPROPERTYTERRORISM POLITICAL VIOLENCEPOLITICAL RISK StrikesCan be CoveredNot CoveredCovered RiotsCan be CoveredNot CoveredCovered Civil Commotion Can be Covered Not CoveredCovered Malicious Damage Can be Covered Not CoveredCovered TerrorismNot CoveredCovered SabotageNot CoveredCovered RevolutionNot Covered Covered Coup D'EtatNot Covered Covered InsurrectionNot Covered Covered RebellionNot Covered Covered Civil WarNot Covered Covered WarNot Covered Covered Forced AbandonmentNot Covered Covered Nuclear, 5 Great PowersNot Covered

11. Political Risk Insurance

12. MARSH Political Risk Perils PerilsCoverage ExpropriationActs by the host government interfering with fundamental ownership rights of the insured's investment including, but not limited to, confiscation and nationalisation. Forced Divestiture Requirement by insured's own government to permanently divest of all of a shareholding in the foreign enterprise. Forced Abandonment Abandonment of a foreign enterprise as a result of advice by the home or a relevant region because of political violence. Inconvertibility / Non-Transfer Delay or inability of a foreign enterprise to exchange local currency into hard currency/to repatriate funds to the insured parent corporation. Non- Repossession, Deprivation Refusal or failure of the foreign government to allow the insured to exercise its right to repossess the insured equipment, in accordance with the terms and conditions of the agreement, or to remove the equipment or commodity from the foreign country. 11 July 10, 2016

13. MARSH Political Risk Perils Continued PerilsCoverage Contract Frustration/ Repudiation Losses resulting from a cancelled or frustrated contract as result of political events in the host country, including non- payment due to political action or inaction. Structured CreditFinancial losses resulting from a private or public borrower's failure to make scheduled payments on an insured loan. Business Interruption Consequential financial losses to a non-financial corporate insured directly resulting from the insured's business operations having been interrupted by political violence or expropriation. Political ViolencePhysical damage to investments and assets located overseas caused by political violence (war, civil war, revolution, insurrection, strikes, riots, sabotage and terrorism). 12 July 10, 2016

14. MARSH 13 July 10, 2016 BROADENING PRI COVER FOR FOREIGN ASSETS & OPERATIONS “SRCCMD” PLUS COVERAGE FOR SABOTAGE & TERRORISM STRIKE, RIOT, CIVIL COMMOTION & MALICIOUS DAMAGE COVERAGE (“SRCCMD”) 1 SABOTAGE & TERRORISM COVERAGE (“S&T”) 2 POLITICAL VIOLENCE COVERAGE (“PV”) 3 FORCED ABANDONMENT COVERAGE (“FA”) 4 EXPROPRIATION COVERAGE 5 “PV”, “FA” PLUS CONFISCATION, EXPROPRIATION OR NATIONALIZATION OF THE OVERSEAS OPERATION (“CEN”) INCLUDING BREACHES OF LICENSES, CONCESSIONS OR MAJOR PROJECT AGREEMENTS “PV” PLUS ABANDONMENT FOLLOWING CESSATION OF OPERATIONS AS A RESULT OF POLITICAL VIOLENCE “S&T” PLUS COVERAGE FOR INSURRECTION, REBELLION, CIVIL WAR, REVOLUTION & COUP D’ETAT AND WAR CURRENCY INCONVERTIBILITY AND NON-TRANSFER COVERAGE 6 “CEN”, “PV”, “FA” PLUS RESTRICTIONS ON CONVERSION OF LOCAL CURRENCY INTO USD FUNDS, OR ON TRANSFER OF THOSE FUNDS OFFSHORE (BLOCKING DIVIDEND, DEBT SERVICE OR OTHER REMITTANCES).

15. MARSH 7/10/2016 BIG PICTURE: MARKET FOR TRANSFER OF “POLITICAL RISK” Standalone terrorism insurance market used to ‘write back’ the post Sep. 11, 2001 exclusion ‘Broader’ political risks have long been excluded by property insurers. A range of markets offer solutions to either specific perils or the full range of political risks. Insurance market categorisation of ‘political’ risks

16. MARSH 15 July 10, 2016 Investments and Operations: Insured Events Confiscation, Expropriation, Nationalization Selective Discrimination Forced Divestiture Cancellation/ breach of License or Concession Business Interruption Exchange – Transfer Risk Arbitration Award Default (Gov’t Breach of Contract) Expropriation Full Political Violence Forced Abandonment PROTECTING YOUR CROSS- BORDER INVESTMENTS & OPERATIONS

17. MARSH 16 July 10, 2016 Benefits of a Political Risk Policy A PRI Policy provides risk transfer of catastrophic loss scenarios that can damage a companies balance sheet and P&L. Political Risk Insurance can provide corporate stakeholders – owners, shareholders, senior management and directors, with comfort that unforeseen risks in emerging country operations are contained. PRI may improve lending arrangements for the parent company’s international operations. PRI can soften perceptions of investors that a company is taking on too much political risk, thus impacting the stock price. Policies may be structured to address one country alone or a portfolio of countries.

18. Claims data and scenarios

19. MARSH Claims scenarios 18 July 10, 2016 2002 Egypt A group of US investors filed for an arbitration suit relating to the expropriation of their interest in the cotton industry 2006 Bolivia A Spanish owned electricity company was expropriated 2006 Bolivia Colquiri mine, owned by Glencore was expropriated and nationalised 2008 Venezuela A fleet of oil rigs owned by an American company were expropriated 2009 Democratic Republic of Congo Having already had their mining license cancelled, the mine was then expropriated from its Canadian owners 2012 Bolivia A Canadian mining company had its mine expropriated and nationalised 2012 Egypt A Saudi fruit and vegetable firm was expropriated 2013 Argentina Argentina's airport regulator forced a Chilean owned airline to vacate its maintenance hanger at one of the airports in Buenos Aires 2006 Bolivia After expropriation, the Colquiri Mine was nationalised 2006 Bolivia A Spanish owned electricity company was nationalised 2008 Venezuela A Spanish owned bank was nationalised 2008 Bolivia An Italian telecommunic ations company had its Bolivian arm nationalised 2011 Venezuela A decree of order was forced reserving the rights of all gold extracted within Venezuela 2012 Argentina A Spanish owned energy company, the largest in Argentina, was forced to sell 51% of its stake to the government Expropriation Nationalisation

20. Thank You Maxwell Chiyangwa Surety & Political Risk Practice maxwell.chiyangwa@marsh.com